Francis Limited is finalizing its accounts for the year ended December 31, 2017 before the finalization of account the following events came to the knowledge of the finance director. 1. The company owns a subsidiary in a foreign country. The government of that has communicated to the company on December 28, 2017 that it will expropriate assets of the subsidiary. The book value of the investment in the subsidiary at the year-end was GHS 50 million and fair market value GHS 75 million. The foreign government has indicated that they will compensate the company only to the extent of 25% of the fair value of the investment in the subsidiary. 2. A damages claim of GHS 2 million has been filled against the company for the breach of contract. The company’s lawyer is of the viewpoint that it is probable that the damages will be awarded to the plaintiff. It is not possible to reasonably estimate the amount of damages, at the year end. However, before the authorization of financial statements the court confirmed the claim at GHS. 500,000. 3. There was a fire at one of the warehouse of the company in January 5, 2018 stocks worth GHS 12 million were completely destroyed. The company stocks were under insurance to the extent of 25% of value. 4. The company has discontinued one of his business locations on November 30, 2017 and has been planning to shift affected employees to other business locations. The relocation cost estimated at the year end is GHS. 1.5 million. 5. One of the customer of the company has burnt himself during use of a product manufactured by Sara Limited just after the year end. The company has decided to resolve the matter out of court by paying damages of GHS 1 million. The company has never created any provision regarding such damages as this event has never occurred in the past. REQUIRED: Show how each of the above events will be dealt in the financial statement of the company for the year ended December 31, 2017.
QUESTION 1
Francis Limited is
1. The company owns a subsidiary in a foreign country. The government of that has communicated to the company on December 28, 2017 that it will expropriate assets of the subsidiary. The book value of the investment in the subsidiary at the year-end was GHS 50 million and fair market value GHS 75 million. The foreign government has indicated that they will compensate the company only to the extent of 25% of the fair value of the investment in the subsidiary.
2. A damages claim of GHS 2 million has been filled against the company for the breach of contract. The company’s lawyer is of the viewpoint that it is probable that the damages will be awarded to the plaintiff. It is not possible to reasonably estimate the amount of damages, at the year end. However, before the authorization of financial statements the court confirmed the claim at GHS. 500,000.
3. There was a fire at one of the warehouse of the company in January 5, 2018 stocks worth GHS 12 million were completely destroyed. The company stocks were under insurance to the extent of 25% of value.
4. The company has discontinued one of his business locations on November 30, 2017 and has been planning to shift affected employees to other business locations. The relocation cost estimated at the year end is GHS. 1.5 million.
5. One of the customer of the company has burnt himself during use of a product manufactured by Sara Limited just after the year end. The company has decided to resolve the matter out of court by paying damages of GHS 1 million. The company has never created any provision regarding such damages as this event has never occurred in the past.
REQUIRED: Show how each of the above events will be dealt in the financial statement of the company for the year ended December 31, 2017.
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